What is a SMSF?
Super is a one of those areas that people tend to either love or hate. Most of the haters generally don’t understand the benefits of super or what you can do with a Self Managed Super Fund (SMSF). And it’s no wonder, we aren’t taught about superannuation in school and there is so much confusion in the marketplace on what you can and can’t do with your super, particularly inside your SMSF.
In Australia, Super is our forced retirement savings. If you have a job, your employer will be putting money into your Super account for you. For a lot of Australians your Superannuation becomes your biggest asset. So yes, it’s really important to take an interest in how much you have, what it’s doing for you and how much you will have when you are ready to retire.
On a positive note one of the great benefits of Super is the tax rate. When you compare saving in your personal name & the tax you end up paying on that income vs the tax you pay on income in your Super Fund the difference is remarkable. In super it’s a flat rate of 15%. Personally this could be as high as 49%
Now that we’ve got a little bit of an idea about Super, let’s take a look at what a SMSF actually is.
What is a SMSF?
A SMSF is a great vehicle to allow you to build your personal empire with your Superannuation. It’s a tool that allows you to look after your own Super. To decide where you invest, and is one of the best tax planning tools available. A SMSF allows you to take control of building your Super Balance, Investing it and distributing when you retire.
Practically what does that mean?
A SMSF is a separate legal entity, with rules that need to be followed. The rules for running the legal entity are for the most part the same each year, with the exception of things like how much you can contribute, how much you can withdraw when you are in pension phase etc.
So the first thing to understand is you can’t just do whatever you want with your Super when you have a SMSF. You are still governed by the normal Super laws.
The SMSF needs to have a Trustee. We always recommend this being a Company. The members of the Super Fund are also the Directors of the Trustee Company. Practically, the people who have Superannuation within the SMSF will also be in charge of the SMSF as Directors of the Trustee Company. It’s the members who then need to ensure they stick to the rules.
The ATO rules the roost when it comes to the compliance requirements for your SMSF. You are responsible for ensuring you prepare your SMSF Tax Return and Financial Reports each year. You then need to have these audited by an approved SMSF Auditor. (Don’t worry we take care of all this part for you)
The maximum number of people you can have in your SMSF is 4.
What happens on a day to day basis?
Think about your SMSF just like your business. You have a bank account. You “deposit” money into that bank account by the way of contributions (more on how to do that in our next post). Then you decide what you want to do with that money – ie do you invest in shares, managed funds, property (ie you might want to purchase the building your business operates in), term deposits etc etc.
A SMSF allows you to have control over all of the investments you make, when you make them and how much each of those investments are for.
The investments need to be for the express purpose of providing for your retirement. The good part of a SMSF is that you can’t touch this money until retirement. It’s forced savings.
For those of you in retirement a SMSF allows you to pay yourself a regular pension. You decide when this starts and when you withdraw the money as well as how much you withdraw (based on how old you are).
Summary
Super is such an important part of building your empire. It’s what we will all live off in retirement. Whilst there are some rules you need to abide by (most of them you already have to abide by with your existing Super anyway), the benefit is you get to control what happens with your money.
Excited about the possibilities of building your empire with your super and want to know the next steps?
Contact us at our Manjimup Office (97771909) or our Pemberton Office (97761909) to arrange a meeting with one of our SMSF specialists to discuss whether a SMSF is suitable for you.
Stay tuned for our series on How to get money into your SMSF, What you can do with that money once inside your SMSF and what the real benefits of having a SMSF are.